TORONTO, Jan 28 (Reuters) - Sherritt International (S.TO) said on Wednesday its Ambatovy joint-venture nickel project in Madagascar needs to be restructured as it copes with falling nickel prices and mounting costs.

Sherritt also said on a conference call with analysts that it had no updated cost estimate for the project, which is scheduled to be completed in early 2010. But it estimated that it would exceed the earlier figure of $3.4 billion.

Sherritt said falling nickel prices and changing market conditions have forced it to seek lower costs for construction materials, freight costs and labor rates. It said it is in discussions with its partners on the costs.

However, the company, which could give a more concise estimate when it releases its results in late February, said it would not tap into its cash reserves to cover the additional costs.

“There is one thing we can’t do and there is one thing we won’t do. If it is a number much in excess of its approved capital budget, we can’t finance that today,” Ian Delaney, chairman and chief executive, said on the conference call.

“Even if we could finance a project in excess of $3.5 billion or $3.7 billion, I wouldn’t do it because I’m not going to bet this company’s balance sheet on the required metal prices to amortize that project.”

Delaney estimated that the project would require nickel in the range of $10 a pound for it to be viable.

Nickel MNI0 has plunged nearly 80 percent since hitting an all-time high in May 2007. The metal was at $5.30 a pound on Wednesday.

Late last year the Canadian miner and energy producer, said it will renegotiate most of its material contracts, and will also defer capital spending and change its construction methodology to make use of local labor, contractors and other resources.

The company owns 40 percent of the Ambatovy project and is its operator. Its partners are Sumitomo Corp, Korea Resources, and SNC-Lavalin (SNC.TO).

Ambatovy is expected to yield 60,000 tonnes of nickel and 5,600 tonnes of cobalt a year. ($1=$1.21 Canadian) (Reporting by Scott Anderson; Editing by Frank McGurty)